The Swiss National Bank currently faces one of its biggest challenges – Save Our Swiss Gold – a referendum on its gold holdings organised by the Swiss People’s Party.
Politicians believe that the bank’s efforts to keep the Swiss franc from getting too strong have left it holding too many devalued euros, at a time when the eurozone economy is weak.
November 30 will be the decisive day that the Swiss vote on the ‘Save our Swiss Gold’ initiative.
The referendum, which is the idea of the right-wing Swiss People’s Party, could put the country’s national bank under intense pressure.
If it is voted through, there would be a ban on Switzerland’s central bank selling any of its bullion and, within five years, at least 20 percent of its general reserve assets would have to be made up of the precious metal – right now it’s just under eight percent.
The Swiss National Bank would also have to start bringing back the gold it currently has stored in the vaults of the British and Canadian central banks.
The SNB, the Swiss government and the country’s most powerful business groups are strongly opposed, saying this would severely restrict what the bank could do in policy terms; for example, to address the strength of the Swiss franc, or adjust inflation.
Gold prices have risen in recent weeks on the possibility of a ‘yes’ vote.
If that happens, central banks worldwide, including in the Middle East, would have to consider increasing their gold reserves.
In the meantime, all eyes are on the bullion market .
To discuss whether this could be a game-changing moment for all central banks, including those in the Arab world, euronews spoke to Nour Aldeen al-Hammoury, the Chief Market Strategist at ADS securities.
Daleen Hassan, euronews:
“The Swiss national bank is holding a lot of euros, which are going down in value. If this initiative goes through, what effect would it have on the Swiss franc’s value against other currencies?”
Nour Aldeen al-Hammoury:
“A victory for the ‘yes’ camp means that the Swiss National Bank will be forced to hold more gold, which would lead to a sharp gains in CHF across the board.
“At the same time, this means the SNB will no longer be able to support the EURCHF above the floor of 1.20. Furthermore, a rising Swiss franc would further deepen deflation. For the past three years, the CPI has showed an increase of 0.2% for only one month back in May.
“Meanwhile, we believe that the SNB will begin issuing some statements and remarks ahead of the referendum to support that 1.20 in Euro Swiss pair.”
“What reaction can we expect from the Arab world in the event of a ‘yes’ vote? Could Arab central banks abandon the dollar and return to gold as their reserve?”
Nour Aldeen al-Hammoury
“This is very complicated. These regions have been holding gold and the US dollar as a reserve currency. However, a ‘yes’ vote would change the major outlook of gold, not only in the Middle East but across the globe.
“The central banks may consider holding more and more gold but, of course, without abandoning the US dollar. The US dollar is, at the end of the day, the reserve currency for the world. But gold will restore its status as a safe-haven investment. Gold demand will rise significantly and we are seeing this already in the region since gold fell to a four-year low.”
join us next week for a special Business Middle East on the crucial OPEC meeting.